SHARE-BASED COMPENSATION

12 Months Ended

Dec. 31, 2023

NOTE 17 - SHARE-BASED COMPENSATION

Share based compensation expenses for periods prior to the consummation of the Combination relate to the share options granted by CAG Cayman to the employees and directors of Cenntro.

Share options granted by CAG Cayman to employees of the Company

On February 10, 2016, CAG Cayman adopted the 2016 Share Incentive Option Plan (the “2016 Plan”), which allowed CAG Cayman to grant options to the employees and directors of Cenntro to purchase up to 14,139,360 ordinary shares of CAG Cayman subject to vesting requirements. On April 17, 2018, CAG Cayman expanded the share reserve under the 2016 Plan, increasing the number of ordinary shares available for issuance under the 2016 Plan by an additional 10,484,797 ordinary shares for a total 24,624,157 ordinary shares. Generally, the options granted under the 2016 Plan became exercisable during the term of the optionee’s service with CAG Cayman in five equal annual instalments of 20% each. The expiration dates of the options are between six and eight years from the respective grant dates as stated in the option grant letters.

In connection with the Combination, CAG Cayman amended and restated the 2016 Plan, adopting the Amended 2016 Plan. In connection with the closing of the Combination, each employee stock option outstanding under the Amended 2016 Plan immediately prior to the closing of the Combination was converted into an option to purchase a number of ordinary shares equal to the aggregate number of shares for which such stock option was exercisable immediately prior to the closing of the Combination multiplied by the Exchange Ratio of 0.71563. As a result, the 12,891,130 options granted by CAG Cayman prior to the closing of the Combination under the 2016 Plan were converted into 9,225,271 options of CEGL. The exercise price of such options modified to equal the exercise price per share of such stock option immediately prior to the closing of the Combination divided by the Exchange Ratio.

The conversion of the incentive stock options of CAG Cayman under the Amended 2016 Plan into incentive stock options of CEGL was deemed a modification at closing of the Combination, which is the modification date. There were, no incremental fair value recorded immediately before and after the modification date.

On August 21, 2023, the Company extended the term and expiration date of each 2016 Option Agreement from eight (8) years to ten (10) years from the date of grant pursuant to the terms of the 2016 Plan .

Share options granted by CEGL to employees of the Company

On May 3, 2022, CEGL adopted the 2022 Share Incentive Plan (the “2022 Plan”), which allowed CEGL to grant options to the employees and directors of the Company to purchase up to 25,965,234 ordinary shares of CEGL subject to vesting requirement.

On May 3, 2022, CEGL granted 12,797,063 options to the directors of the Company to purchase CEGL’s ordinary shares at exercise prices ranging from $1.680 to $1.848 per share. Among them, 297,615 options have a contractual term of five years, 12,499,448 options have a contractual term of ten years.

The fair value of option per share grant on May 3, 2022 varied from $1.1130 to $1.4310. The aggregate grant date fair value of the options grant was $18,217,956.

For the year ended December 31, 2023 and 2022, the total share-based compensation expenses were comprised of the following:

	For the Years Ended December 31,
	2023		2022
General and administrative expenses	$	4,630,230	$	3,242,625
Selling and marketing expenses		193,939		504,199
Research and development expenses		406,103		284,805
Total	$	5,230,272	$	4,031,629

A summary of share options activity for the years ended December 31, 2023 and 2022 is as follows:

	Number of Share Options			Weighted Average Exercise Price US$		Weighted Average Remaining Contractual Years		Aggregate Intrinsic Value US$
Outstanding at January 1, 2022		9,225,271			1.10		2.60		42,799,081
Granted		12,797,063			1.68
Exercised		(51,468	)		0.28
Forfeited		(334,167	)		1.68
Expired		(33,333	)		1.68
Outstanding at December 31, 2022		21,603,366			1.44		5.99		721,210
Outstanding at December 31, 2022(After the “Share Consolidation”)*		2,160,351			14.38		5.99		721,210
Granted		-			-
Exercised		-			-
Forfeited		(116,125	)		16.80
Expired		(19,111	)		13.09
Outstanding at December 31, 2023		2,025,115			14.26		4.81		-
Expected to vest at December 31, 2023		591,600			17.05		8.13		-
Exercisable as of December 31, 2023		1,433,515			13.10		3.44		-

*On September 1, 2023 the Company held its annual general meeting of shareholders where among other proposals, the shareholders of the Company did approve the consolidation of the ordinary shares of the Company on a one-for-ten (1:10) basis with effect from December 8, 2023 (the “Share Consolidation”). The one-for-ten reverse stock split decreased the number of outstanding shares and increased net loss per common share. All per share and share amounts presented have been retroactively adjusted for the effect of this share consolidation for all periods presented.

The Company calculated the fair value of the share options on the grant date and modification date using the Black-Scholes option-pricing valuation model. The assumptions used in the valuation model are summarized in the following table.

	For the Years Ended December 31,
	2023	2022
Expected volatility	83.41%~86.57%	86.28%-83.96%
Expected dividends yield	0%	0%
Risk-free interest rate per annum	2.97%~3.01%	2.97%-3.01%
The fair value of underlying ordinary shares (per share)	$16.80	$1.68

The expected volatility is calculated based on the annualized standard deviation of the daily return embedded in historical share prices of the Company. The risk-free interest rate is estimated based on the yield to maturity of US treasury bonds based on the expected term of the incentive shares.

As of December 31, 2023, there was approximately $8,734,833 of total unrecognized compensation cost related to unvested share options. The unrecognized compensation costs are expected to be recognized over a weighted average period of approximately 2.16 years.